ABA Banking Journal - March 2010 - (Page 22)
Wealth managers, still looking to find their feet in a post-financial-crisis/post-Madoff world should consider three things: What has not changed, what has changed, and what has really changed
What are the new
he impact of the ﬁnancial collapse of 2008 and early 2009 continues to reverberate through the wealth management industry. Advisors seem to spend as much time defending their ﬁrms or their industry as actually managing client wealth. In addition, the events of 2008 shook long-practiced investment paradigms. Many of the historical keys to long-term investment success seemed to fail us, right when we needed them most. Finally, much of the wealth management industry charges its clients on a percent of assets under management (AUM) basis. With the markets crashing and clients moving to cash, advisors saw revenues fall dramatically, putting their practices at risk and leaving them working harder for less money. As the markets recover and investors put money back into riskier assets, however, the migration of clients to new advisors should be immense. Disruptive markets frequently are the best times for advisors to grow their practices—if they embrace the new realities of what clients want and expect from them.
Delivering the “Endowment” Core/Satellite Model
Diversified Alts Liquid Real Assets
G MLPs G Commodities G REITs
Strategic asset allocation
“Passive Core” “Active Core”
N US LC N US SC N Dev. Int’l ! Index Funds ! ETFs ! TEI* Products N US LC/SC N US All Cap
Managed Futures (CTAs)
Private Real Estate
N Int’l LC/SC N Int’l All Cap N Global Equity N Micro-Cap N Emerging Mkts. N Fixed Income
*TEI = Tax-Enhanced Index
Source: Fortigent, LLC
WHAT HAS NOT CHANGED
Wealth management remains in a “post-product, post-service” state of evolution. Competing solely on the quality of products offered or service delivered is insufﬁcient to differentiate a ﬁrm in the face of a changing industry and increased client scrutiny. Successful ﬁrms need to move their business models beyond simply products and service and deliver a differentiated client experience. Think about Whole Foods, Nordstrom, Mercedes-Benz, Ritz-Carlton, and Starbuck’s Coffee. These ﬁrms all offer highquality products and services. What sets them apart, however, is that they all deliver a differentiated client experience that allows them to charge premium prices for largely commoditized products and enjoy intense client loyalty and advocacy. Successful By Scott Welch, CIMA, senior managing director, investment research and strategy, Fortigent, LLC, Rockville, MD Scott.Welch@Fortigent.com
22 MARCH 2010/ABA BANKING JOURNAL
wealth management ﬁrms must strive to do the same. In delivering a competitive wealth management experience, ﬁrms must: I Offer a differentiated investment platform; I Provide clients with wisdom, knowledge, and understanding, not simply data and information; I Deliver a client-centric service model; I Employ a “credentialized” professional staff; I Implement an advice-oriented business model; and I Engage in afﬁnity-based client segmentation. Let us examine three of these issues in detail.
Delivering a differentiated investment platform
The foundations of delivering a differentiated investment platform are: An Integrated Wealth Management solution that incorporates thoughtful asset allocation, appropriate asset location and objectives-based portfolio construction incorporatSubscribe at www.ababj.com
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